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A strategy to grow wealth and augment income (2013).

Tuesday, December 31, 2013

I am primarily investing for income and in my last blog post, in what has become a yearly practice, I revealed my full year income from S-REITs as well as how they fit into my investment strategy. They are relevant to income investors but with the spectre of rising interest rates in the years ahead as well as a peaking in the real estate cycle here, it is sensible not to be overly optimistic about S-REITs in general.

So, apart from a large purchase made in Saizen REIT in the middle of 2012, I have devoted most of my resources to stocks. These should be undervalued and are likely to continue growing for years to come. Since I want to have income from my investments, I would also like for these stocks to pay dividends.

Marco Polo Marine's yard in Batam.


Now, with these stocks, the main strategy is to buy and hold. However, I am not averse to trading around my investments. So, I could divest partially or fully if it is a good idea to do so. For 9M 2013, I revealed that I locked in gains of S$188,625.13. Has the number changed?

Well, I mentioned that I partially divested my investment in Sabana REIT last month. This added S$12,860.03 to gains from trading in 2013.

So, total trading gains in 2013 is S$201,485.16.

What about adding to my long positions?

What I hope to do primarily is to identify good companies, initiate long positions in them at fairly good prices and then wait to add to these positions if there should be bad news which send their share prices down. These are companies which I am comfortable to stay invested in for years, knowing that they possess some competitive advantages which differentiate them.

Warren Buffett famously said that we should invest with the thought that the stock market could close the next day and not reopen for five years. What does this mean?

Invest in stocks of companies which we are confident will do better over the next five years. We wouldn't be bothered by any volatility in their stock prices in the meantime unless it is to add to our long positions with greater margins of safety. If we understand this, we will know what stocks to avoid. How? Do an inversion.


With this in mind, in the last three months, I added to my long positions in NeraTel and Yongnam as their share prices declined due to bad news which I believe are neither long term nor recurring in nature. I have received fairly good dividends from these stocks and I also made some money trading these stocks earlier in the year.

I also added to my long position in SPH. I was paid both the special dividend and the year end dividend for this as well.

Marco Polo Marine is still my single largest investment although its share price has not declined significantly enough for me to add to my long position. The much higher dividend per share paid out recently was a bonus.

I also retain long positions in CapitaMalls Asia and Wilmar International. These are strong companies and leaders in their fields. They are likely to do better in future.

So, was anything new added to my portfolio?

I initiated a long position in Croesus Retail Trust and even added to this position by using funds freed from a partial divestment of Sabana REIT.

Wait a minute? Didn't I say that I am wary of rising interest rates and a possible peaking of the real estate cycle? Yes, I did but Croesus Retail Trust owns malls in Japan and the BOJ is bent on keeping interest rates really low. Abenomics demand this. The Trust has a relatively low cost of debt which is locked in for 5 years.

Luz Shinsaibashi.

Japan has also suffered from continual deflation for 20 years. If anything, the real estate cycle should have a greater chance of bottoming than peaking. Anecdotal evidence tells of a recovering real estate market in recent months that is likely to pick up speed in future.

Although my strategy, with a generous dose of luck, has worked well this year, I can only hope that it will continue to work in the new year.

To grow wealth and augment income? Yes, indeed, that is the plan.

Related posts:
1. 2013 full year income from S-REITs.
2. Yongnam: Substantial shareholder increased stake.
3. NeraTel: Added to my long position.
4. Marco Polo Marine: Exciting times ahead.

16 comments:

Singapore Man of Leisure said...

Happy New Year AK!

== ==
^
U


AK71 said...

Hi SMOL,

HAPPY NEW YEAR! :D

Gary said...

Hi AK

Happy New Year! Wishing you a healthy, bountiful and fruitful year in 2014. =)

What's your view on Old Chang Kee? Didn't see any paragraph on Old Chang Kee.

sillyinvestor said...

Cheers AK,

A toast to our life of abundance!! May 2014 be better!

Abundance of work when holiday ends, hahaha...

AK71 said...

Hi Gary,

I guess I could have missed out a few counters.

Old Chang Kee? I am still vested. There is not much to say really.

I think it will continue to do well and it will probably continue to pay dividends. 1.5c DPS is probably realistic.

At 80c a share now, I have no interest in buying more though.

Happy new year! :)

AK71 said...

Hi Mike,

Indeed! An abundance of good things! An abundance of work is probably a good thing too actually. ;p

Happy new year! :)

Solace said...

Hi AK,

Happy new year! May 2014 be another good year for you.

Always enjoy your blog and analysis. Hope that i can continue to tap on yr investment experience and we can continue exchange pointers on the stock market for many years ahead.

Also hope in 2014, when time and opportunity allows, i will contribute to some more guest blogs. Thx for sharing yr blog space generously this year !

Have a blessed year !

AK71 said...

Hi Solace,

HAPPY NEW YEAR!

Fireworks going on here! Noisy! Everyone is excited. Haha.. :D

I am happy to share what little I know but I definitely do not know everything. I am happy to share my convictions but they could be wrong.

So, please take all that I say with a pinch of salt. ;p

Thanks for taking the time to do guest blogs here. I really appreciate your time and effort. I look forward to more guest blogs in 2014. :)

jovan said...

Hi AK,

happy new yr and wish you a even more huatful 2014 :).

Do keep up the good work that you are doing.

Since you are on this, I hope you dont mind me asking you a question. As Marco Polo is you biggest holding, I wonder if you happen to also look at ASL Marine as they are in the similar sector?

hope to hear from you :).

PS: I am vested in Marco Polo.

Kind regards
Jovan

AK71 said...

Hi Jovan,

Happy Huat Year to you! :D

Yes, I did look at ASL Marine and decided that I like Marco Polo Marine more because of its moat. ;)

ASL Marine is trying to do a Nam Cheong now by building OSVs before orders are received. It could bring in more earnings but it is also riskier and would be a strain on finances.

Nightmare_Angel said...

Hi AK71,

Happy belated New Year and a HUAT horse year! :D

If I'm not wrong, u should have a small stake in KingWan and HockLianSeng. Any inputs from your end? :)

Cheers
QL

AK71 said...

Hi QL,

I don't have a stake in King Wan although a guest blogger, Solace, wrote a piece on this before. Look for Solace's blogs in the left sidebar.

As for Hock Lian Seng, I retain a small position in this counter although I am prone to forgetting that it is there. It is a sleepy counter but there is nothing wrong with the company. I like it for its dividends.

Happy New Year! :)

SOLIDCORE said...

Hi AK,

Marco polo stocks jumped up this week, now at 40.5cents and technicals seems to indicate further upside.

Also, there is this EGM on some new IPT General mandate. Wonder if it has any connection to the pop.

Btw, I'm curious and also excited about the upcoming Lotte Shopping IPO! Could be good news!

AK71 said...

Hi Solidcore,

We know that Marco Polo Marine is undervalued. Even now, it is trading at a 15% discount or so to NAV. What is even more interesting is that earnings will improve this year and next, barring unforeseen circumstances. :)

What I find important is the management's commitment to reward shareholders in recent years through meaningful dividends. This culture bodes well for minority shareholders like me as I am paid to wait.

AK71 said...

Cargill and Brazil's Copersucar announced plans last week to create the world's biggest sugar trader through a 50-50 joint venture.

"Consolidation in the soft commodities space has been a trend for some time and it will continue to remain a trend," Olam CEO Sunny Verghese said on the sidelines of a conference.

"It is an attractive sector with good returns in the long term, and there is a race intensifying for resources," he said, adding that metals could be next to see more consolidation.

However, investing in the commodities industry may require some patience partly due to the long gestation of assets such as palm and coffee, and sovereign wealth funds may fit the bill due to their longer-term horizons, Mr Verghese said.

"A lot of the sovereign wealth funds are long term in terms of their investment and holding period. So they have become more natural investors to this asset class, than the traditional capital market players."

Source:
http://www.theedgesingapore.com/the-daily-edge/business/47850-olam-ceo-sees-more-consolidation-in-commodities-sector.html

AK71 said...

Rising incomes in nearby Asian markets have stoked interest in acquiring food-related companies in Australia, the fourth- biggest wheat exporter and third-largest shipper of beef. About US$12 billion in deals have been announced in the country’s food and agricultural sector over the past five years including the offer for Goodman Fielder, according to data compiled by Bloomberg.

Wilmar, the world’s biggest palm-oil producer, will bid with First Pacific through a 50-50 joint venture.

Wilmar said yesterday that First Pacific has entered into agreements with Goodman Fielder’s two largest shareholders, Perpetual Ltd. and Ellerston Capital, to buy as much as 9.8% of its shares if the bid is recommended.

“It’s definitely Wilmar wanting to go more into consumer products,” said Ivy Ng, an analyst with CIMB Investment Bank Bhd. in Kuala Lumpur. The company will be able to introduce Goodman Fielder’s products into China, where Wilmar is strong, and First Pacific could do the same for Indonesia, she said.

Wilmar had previously approached the baker and discussed a takeover after buying a 10% stake in February 2012. Discussions that year failed to produce a price they could agree on and Wilmar was considering selling the holding, Chief Executive Officer Kuok Khoon Hong said in August 2012.

The revised offer gives Goodman Fielder an enterprise value of A$1.92 billion, equivalent to 7.9 times its A$243.7 million in earnings before interest, taxes, depreciation and amortization in the most recent 12-month period. That compares with a median multiple of 9.9 times Ebitda in 40 baking and dairy takeovers globally over the past five years, according to data compiled by Bloomberg.

Goodman Fielder fell 1.1% to 66.5 Australian cents at the close in Sydney trading before the acceptance announcement. The stock dropped a record 22% on April 2 after the company said earnings would fall as much as 15% below analysts’ estimates and that it expects to write down businesses.

http://www.theedgesingapore.com/the-daily-edge/business/48383-goodman-fielder-accepts-wilmar-first-pacifics-sweetened-bid-update.html

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